Many of the deepwater endeavours are set to turn a profit even with $40 oil. File Image / Pixabay
The crude market may be turbulent so far in 2018, but overall it is a remarkable improvement over the lows of the year prior; and the can-do spirit emerging among oil producing nations is marked by a palpable enthusiasm for deepwater projects, as well as a possible multi-billion dollar liquefied natural gas (LNG) venture between Russia and Saudi Arabia.
The latter was reported after Khalid al-Falih, energy minister for the Saudis, told reporters in Riyadh that state-owned Saudi Aramco is "seriously" studying an opportunity to invest in a future LNG plant in Russia's Arctic, in order to meet the kingdom's soaring energy demands.
Al-Falih's Russian counterpart, Alexander Novak, also told Riyadh media that the two countries have a list of 23 projects they may develop, including Arctic LNG-2, an LNG project in northern Siberia that may start in 2022 or 2023 and cost about $20 billion; plus, Russian companies are interested in building regasification terminals in Saudi Arabia (necessary if the kingdom decides to import LNG).
Andy Brown, Royal Dutch Shell
It's another example of how we are unlocking development opportunities with lower costs
Meanwhile, the confidence of energy companies arising from the ability to make a profit with crude at around $50 per barrel is reportedly helping spur a resurgence in interest in deepwater projects, and Bernard Looney, head of BP's oil and gas production division, told Reuters that "You will see more deepwater over time, for sure," referring to his company expected to approve various projects this year, including in Senegal, Mauritania, Oman, and Azerbaijan.
Additionally, Royal Dutch Shell's Penguins oil and gas development in the British North Sea is due for completion in 2021 at a cost of around $1 billion; 2018's first deepwater project will rejuvenate the 44-year-old field with 8 new wells 165 meters underwater connected to a new production vessel.
Andy Brown, head of Shell's oil and gas production division, said, "It's another example of how we are unlocking development opportunities with lower costs."
Bernstein analysts expect around 40 new offshore projects to be approved in 2018, compared with 29 last year and 14 in 2016 - and a substantial number of them are set to be profitable with oil as low as $40 per barrel (made possible with the projects being smaller than the traditional field size, averaging 42,000 barrels of oil equivalent per day, compared with 69,000 last year).
Left unsaid is the impact these new projects will have on global supply and demand, whose balance analysts fear may be easily upset with rising U.S. shale production: compared to shale, which accounts for around 7 percent of the world's crude supply of 98 million barrels per day (bpd), offshore production accounts for over one quarter - and one platform can produce 150,000 bpd in some cases.
Indeed, if the International Energy Agency's opinion holds any weight, then these developments should be regarded with fear in the analytical realm: earlier this week the agency blamed U.S. shale production for having the potential to ruin the supply and demand balance supposedly being achieved by the Organization of the Petroleum Exporting Countries; it predicted that "fast-rising production.....is likely to grow more than demand" this year.